Understanding the Process of Innovation

Just what is the BIG idea? In this Harvard Management Update piece, Harvard Business School professor Clayton Christensen helps us understand the sources of innovation inside companies and what blocks it.

by Loren Gray

Michael Collins is looking to diversify. His company, Big Idea Group, currently produces only children's toys, but he thinks his process for discovering, refining, and bringing ideas to market can work in other niches.

As the Harvard Business School case "What's the BIG Idea?" explains, Collins is setting his sights on the home and garden business. Clayton Christensen, professor at Harvard Business School, uses this case to frame the central questions for anyone trying to understand the sources of innovation, and what blocks it, inside companies.

Does Collins have the creativity to pull this off? Focus instead on Big Idea Group's "process of innovation and value creation," says Christensen. Lack of creativity is rarely the reason for lackluster products and services coming out of the pipeline. "There's usually some process by which a potentially great idea gets prostituted into something lackluster, or by which the wrong idea gets put forward."

Break the innovative process down and analyze each component, Christensen recommends. That will help you understand "where the competitive advantages lie." His analysis highlights two stages of Big Idea Group's four-phase process of innovation: the generation of ideas and the winnowing of the ideas down to a manageable few.

There's usually some process by which a potentially great idea gets prostituted into something lackluster.— Clayton Christensen

The Idea-generation Phase

Large toy manufacturers often discard the products sent to them by outside inventors without even looking at them. Because of their hurdle rate—the minimum return required on a contemplated investment—they probably don't have the time or resources to devote to smaller ideas that won't have much chance of wide distribution.

Big Idea Group, by contrast, uses a low-overhead approach that welcomes any and all inventors. These "Big Idea Hunts," held at regular intervals around the country, allow inventors to present their ideas to a panel of industry experts. Collins's practice of giving constructive feedback on every idea, his reputation for deep knowledge, and the impressive industry contacts he's acquired have earned him a loyal following: his idea-generation process yields 200 interesting concepts a month.

The Winnowing Phase

The large toy manufacturers say they're starved for imaginative ideas and have been struggling for years to develop new products that don't rely on movie tie-ins. How can this be? "Inside the large manufacturers you've got middle managers who want to put forward only those products that look like what's been approved in the past," explains Christensen. A product idea that gets rejected or that gets approved and then bombs will damage the middle manager's career. "As a consequence of this natural process of deciding what to carry forward, the ideas that get developed into business plans are the ones that look a lot like the ideas that got funded before."

"This is not necessarily a bad process," says Christensen, "it's just good at certain things." For example, after Sony's founder Akio Morita stepped away from the business in the early 1980s, the company's marketing group hired its first MBAs, who brought with them a data-driven analytical approach to understanding new market opportunities. "That's a great process for finding gaps in well-established markets," says Christensen, "but it's a bad process for making intuitive bets."

Relying largely on Morita's intuition, Sony had a string of "twelve bona fide disruptive technologies that created new markets with new customers and then killed off the market leaders" between 1950 and 1979. The analytical approach, by contrast, produced significant innovations during the 1980s and 1990s, but they were all "late entrants into well-established markets."

What kinds of products are best suited for analytical thinking and what kinds are best suited for intuitive thinking? "If you can understand how and why a process does what it does," Christensen concludes, "when an idea comes into the pipeline, you'll know how to use your process—or whether to circumvent it and create a parallel process for developing the idea."